Due to the unaffordable housing market in Australia, it is becoming increasingly popular for two or more people to purchase property together. This arrangement gives people the opportunity to break into the property market by sharing the costs with another person. If you are planning to purchase a property with someone else, you should consider whether you want to purchase it as joint tenants or tenants in common. Even though ‘tenants’ is a term commonly used for someone renting a property, in this context, it refers to the type of ownership and the associated rights.
The primary difference between the two ownership types is what happens to your share in the property when you die or ‘the right of survivorship.’ It is, therefore, extremely important to understand the implications of the ownership structure you choose. Having the right type of ownership can prevent problems in the future.
The term ‘Joint tenancy’ refers to the arrangement where all owners of the property have joint and equal ownership of the property. This is irrespective of the contribution made by each of them. None of the joint owners can point to a particular area of the property and say that it belongs to them. For example, if two people, Micky Mathews and Minnie Mathews buy a property together as joint tenants, even though Micky contributed 60%, and Minnie only contributed 40%, their ownership on the title will be recorded as follows:
The property owned with others as joint tenants does not form part of your estate. If one owner dies, their share in the property is transferred to the surviving owners equally. This is done by lodging a notice of death at the Land Registry Services. The share of each deceased owner will continue to pass to the surviving owners until there is only surviving owner, who then becomes the sole owner and the property becomes part of that sole owner’s estate and subject to that owner’s will.
Joint tenancy is commonly used between married couples or long term de facto partners.
If you currently own property as a joint tenant, and you have recently separated, or divorced, you should consider severing the joint tenancy. A joint tenancy can be severed by agreement, or unilaterally by one of the owners.
Unlike joint tenancy where all owners have equal ownership of the property, tenancy in common is held as a share in the property. The share can be equal or unequal, however, the number of shares each person owns usually reflects that owner’s actual interest in the property. If we take the above example of Micky and Minnie again, but this time, they buy the property as tenants in common, their ownership will be reflected on the title as follows:
IN 60/100 SHARE
IN 40/100 SHARE
AS TENANTS IN COMMON
Your share in a property owned as tenants in common will not pass to the other owners automatically. Instead, it will form part of your estate and will be transferred in accordance with your will, or in accordance with the laws of intestacy if you die without a will. It is therefore very important for people who own property as tenants in common to have a will, so that their share in the property is passed in accordance with their wishes.
For these reasons, tenancy in common is more appropriate if you are buying property with friends, siblings, or business partners, or if you have children from previous relationships or where there are circumstances where you do not want your share in the property to go to the other owner or owners of the property.
The type of ownership best suited for you will depend on your individual circumstances.
Take the example of Minnie Mathews again. Minnie is now divorced and has two children from her relationship with Micky. From the property settlement with Micky, she received $350,000.00. This is her only major asset. Minnie wants to buy a property worth $700,000.00, but she currently does not work so she cannot get a loan from the bank. Minnie’s new partner Duffy, who has stable income and is able to get a mortgage, offers to help her buy this property in exchange for being registered as an owner on the title. They buy the property as joint tenants.
A few years later Minnie dies. In her will, Minnie leaves everything to her children. However, as Minnie invested all her major assets in buying the house jointly with Duffy, the house passes to Duffy and Minnie’s children, the beneficiaries of the estate, are left only with the monies she had in her bank account, resulting in a Succession Act claim, and a long and bitter family feud.
In this scenario, if Minnie had owned the property as tenants in common with Duffy, she would have been able to pass her share in the property to her children. It is, therefore, of utmost importance to carefully consider your circumstances and seek legal advice if necessary, before you decide the type of ownership best suited for your needs.
The above is a brief and general guide only regarding the two most common types of ownership. You should contact your solicitor prior to settlement, to determine which type would be suitable for you.